The Shanghai Stock Exchange (SSE) has the potential to play a greater role in improving mining company transparency and build upon its existing social responsibility and corporate governance measures, said Global Witness and Syntao in a new report published on January 16, 2013.
Transparency Matters: Disclosure of payments to governments by Chinese extractive companies presents a rigorous assessment of tax payments made by Shanghai-listed mining companies to governments in resource-rich countries in 2010 and 2011.
It finds that while several companies stand out in the level and quality of information they publish, much more could be done by companies and regulators to enhance reporting beyond the existing requirements.
"Our research reflects the emerging global consensus that transparency of payments made to resource-rich governments is necessary to prevent corruption and associated conflict," said Dr. Guo Peiyuan, Syntao.
China's supply of natural resources is a key element in the drive to sustain economic growth and long-term energy security. During the last decade, dozens of Chinese companies have injected hundreds of billions in U.S. dollars into mining sectors in foreign counties.
However, many Chinese companies face particular investment and security risks, making them vulnerable to corruption and instability.
As for iron ore investment, Chinese enterprises have injected over US$ 10 billion between 2006 and 2011 into foreign countries, according to data released by China's National Development and Reform Commission.
"It clearly demonstrates that a number of large Chinese mining companies are already going beyond the basic reporting requirements and providing information about their payments to resource-rich governments in a detailed way.
As a leading stock exchange in China on corporate governance disclosure, the SSE now has a golden opportunity to set an example and make quality reporting the norm," Dr. Guo explained.
Transparency Matters also highlights some innovative measures brought in by the SSE, such as those looking at the social contribution value of companies per share and the transfer of mining rights.
However, the report finds that measures could be more coherently implemented to maximize investor protection and risk management.
The report also presents an analysis of survey responses from a cross-section of extractive industry stakeholders in China. Responding to the suggestion that the SSE could implement improved requirements for publishing information, a significant proportion of respondents believed this would improve the global reputation of Chinese mining companies and help investors better analyze risks faced by companies.
Nearly a third of respondents explicitly supported the SSE synchronizing its regulations with those in Hong Kong, the United States and pending requirements in the European Union.
"More transparency would bring mutual benefits for companies, investors and local populations in resource-rich countries and in China," said Gavin Hayman, director at Global Witness.
"We're seeing Chinese respondents in particular recognize the long-term value for companies that come from improving the transparency of their corporate governance and social responsibility practices." Global Witness and Syntao recommend that the SSE review its existing disclosure requirements targeted at the extractive industry.
In particular, the SSE should follow international best practice standards and require extractive companies to provide details on payments to domestic and host governments on an annual basis.
"The Shanghai Stock Exchange could mark itself out as a global leader by introducing a requirement for mining companies to disclose payments made overseas," said Hayman. "Our report shows there is a growing appetite among key industry stakeholders for them to take this valuable next step."
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